US EARLY MORNING: Traders buy the dip in Nasdaq after it entered correction

• 
  APAC: Asian equities were mostly higher after an indecisive start and choppy lead from Wall St. Australia's ASX 200 lacked firm direction as underperformance in Financials and Tech was offset by strength in Miners and after better-than-expected jobs data. Japan's Nikkei 225 swung between gains and losses due to currency fluctuations and as participants digested encouraging trade data. JGBs rangebound amid the indecisive mood in Japan and lacklustre trade in T-Note futures, but with downside also limited with the BoJ present in the market for over JPY 1.3tln of JGBs in 1yr-10yr maturities. China's Hang Seng and Shanghai Comp. were kept afloat after further policy easing by the PBoC, which reduced the 1-year Loan Prime Rate by 10bps and cut the 5-year LPR by 5bps for the first reduction to the mortgage reference rate since April 2020. The PBoC injected a net CNY 90bln, and set the USD/CNY mid-point at 6.3485 (exp. 6.3482, prev. 6.3624) for the strongest fix since May 2018.


• 
  EUROPEAN START: Major bourses in Europe kicked off the session with a mild positive bias which dissipated within the first hour of trade (Euro Stoxx 50 -0.4%; Stoxx 600 -0.2%), with fresh catalysts also on the lighter side. The overall mood across the equity space is one of indecision as the positivity from APAC weakens; cash indices are now in the red across the board to varying degrees. The AEX is cushioned by its heavyweight Unilever (+1.3%) clawing back some recently lost ground after suggesting it will not increase its offer for GlaxoSmithKline’s Consumer Health unit. As such, the Consumer Staples sector stands at the top of the bunch whilst healthcare remains subdued. Delving deeper, overall sectors are mostly in the red with a slight defensive bias. Basic Resources made its way down the ranks since the cash open as base metals trimmed earlier gains in tandem with the risk profile. Oil & Gas and Banks among the laggards amid pullbacks in crude prices and bond yields.


• 
  US PREMARKETS: Having traded higher during the APAC session and at the start of the European day, US equity futures are up by 0.0-0.4% (RTY lagging, NDX leading), though gains have pared after the European open. China’s central bank eased policy overnight, supporting global equities (and pointing towards diverging US/Chinese monetary policy dynamics – this divergence theme has been flagged up by a few desks recently, with some reportedly looking outside the US for growth opportunities in equities; today, for instance, HSBC cut its view of US stocks to neutral while raising its view of Eurozone stocks to overweight), while some desks have also talked-up buying the equity dip after the Nasdaq entered ‘technical correction’ for the fourth time since the pandemic began. Broadly speaking, however, the focus remains on the outcome of US monetary policy, where the market expects the Federal Reserve to hike interest rates four times this year, starting in March, to put a lid on surging consumer prices; the central bank will likely allude to these themes at its confab next week, which may give further impetus to US yields. US Treasury yields are up by 2-3bps, but are off the highs, with the shape of the curve flatter to the tune of around 1bps. Analysts have suggested that the move higher in yields is unlikely to be vertical as the Fed normalises policy, and instead will likely happen in a stepped-fashion, if history is anything to judge by (with further catalysts coming down the line when traders begin to think about what sort of level rates will eventually peak out); accordingly, some – like the analysts at BMO – have suggested that we could see consolidation plays in these ranges ahead of the Fed’s meeting next week. In currencies, the Dollar Index is meandering around neutral. The Aussie is outperforming on strong jobs data (though these job gains came before the Omicron variant), and influential Aussie bank Westpac bringing forward its RBA tightening forecasts. EMFX is more of a mixed picture, where the risk-sensitive ZAR is gaining, but the TRY is weaker ahead of the CBRT rate decision later today (expected to keep rates unchanged). The crude upside appears to be taking a breather with major benchmarks lower by 0.60-0.80 after the API reported a surprise weekly build in crude stocks, while gasoline stocks saw a larger than expected build; distillates saw a slightly bigger than expected draw. The supply-side of the equation has been in focus amid questions over OPEC's spare capacity as well as geopolitical tensions supporting prices, but today, there is some reprieve as reports suggest that the 150k BPD Kiruk-Ceyhan oil pipeline has now returned to full capacity.

DAY AHEAD 20TH JANUARY:

• 10:00GMT/05:00EST: EZ Inflation (DEC, FINAL)


• 11:00GMT/06:00EST: South Africa Building Permits (NOV)


• 11:00GMT/06:00EST: Turkey CBRT Rate Decision (preview here)


• 12:00GMT/07:00EST: Mexico Unemployment Rate (DEC)


• 12:30GMT/07:30EST: EZ ECB Meeting Accounts (preview here)


• 13:30GMT/08:30EST: Canada ADP Employment Change (DEC)


• 13:30GMT/08:30EST: US Weekly Jobless Claims (15/JAN)


• 13:30GMT/08:30EST: US Philadelphia Fed Manufacturing Index (JAN)


• 14:30GMT/09:30EST: Turkey Central Government Debt (DEC)


• 15:00GMT/10:00EST: US Existing Home Sales (DEC)


• 16:00GMT/11:00EST: US 2yr, 5yr, 7yr and 2yr FRN Announcement


• 15:30GMT/10:30EST: US DoE Weekly Energy Inventories (14/JAN)


• 16:30GMT/11:30EST: US 4-Week, 8-Week Bill Auction


• 18:00GMT/13:00EST: US 10-Year TIPS Auction


• 21:00GMT/16:00EST: Netflix (NFLX) earnings

GLOBAL NEWS:

• 
  WASHINGTON: US President Biden, in his first press conference of the year, said that the Fed had a critical job in ensuring elevated prices do not become entrenched, and it was appropriate for the central bank to recalibrate its support for the economy, also calling on Congress to confirm Fed nominees without delay. On his Build Back Better plan, Biden thinks they can get as much of it done and fight for rest later, and suggested that breaking the plan up into smaller pieces of legislation may be easier to get through Congress. Elsewhere, Senate Democrats failed to overcome the GOP blocking of the voting rights bill and failed to get enough votes to change the filibuster rule to advance voting rights bill after opposition from Senators Manchin and Sinema.


• 
  US/RUSSIA: US President Biden thinks Russia President Putin does not want a full blown war, but thinks Putin will test the West. Biden added that Putin had never seen sanctions like those that Biden has promised; elsewhere, he said Ukraine joining NATO in near-term was unlikely. A senior administration official said no option had been taken off the table regarding sanctions on Russia, and the US was prepared to look at sanctions on the largest financial institutions in Russia if there was an invasion of Ukraine.


• 
  US/CHINA: US President Biden when asked about lifting sanctions on imports from China, said that was 'uncertain' but officials are looking at the matter, noting that China is still not meeting its Phase One trade deal commitments. Elsewhere, China said a US warship entered waters near the Paracel Islands without permission, and it demanded that the US immediately stop such provocations or it will bear serious consequences of unforeseen events.


• 
  US/EU: US and EU officials are looking considering holding a joint Energy Council in Washington on February 7th; EU’s Borrell and Simson would likely meet with US’ Blinken and Granholm, Politico reported.


• 
  US/UK: US and the UK agreed to launch talks on the steel and aluminium tariff dispute in which the talks will address global excess steel and aluminium capacity that is driven largely by China, according to a statement.


• 
  N. NOREA: A Politburo meeting on Wednesday, which was presided over by leader Kim, called for reconsidering trust building measures with the US due to its hostile policies; the meeting ordered a review of the restarting of all temporarily suspended activities.


• 
  UK POLITICS: More Tory MPs are reportedly considering switching to Labour following the defection of Bury North MP Christian Wakeford, according to iNews citing party sources.


• 
  COVID: A WHO committee recommended not requiring proof of vaccination against COVID-19 for international travel.

CENTRAL BANKS:

• 
  PBOC: The China central bank cut its Loan Prime Rates, a move flagged by a reduction in its MLF rates earlier in the week. The 1-Year LPR was set at 3.70% (prev. 3.80%), 5-Year LPR set at 4.60% (prev. 4.65%). "A cut to the LPR was on the cards once the PBoC cut the cost of funding for banks, with 10bps reductions in both the MLF and repo rates earlier this month," Pantheon Macroeconomics said, "the latest move follows a 5bps drop in December, and accompanies a broader push by the PBoC to maintain ample liquidity." Pantheon argues that the central bank's primary policy objective is to facilitate government and state-owned enterprise bond issuance, with these funds needed for a big infrastructure push this quarter, and for M&A activity in the property sector.  "We still do not expect a rebound in property, and the authorities have been clear that they want to avoid flood-like stimulus," PM writes, "if a developer is already in trouble, they will remain so, it’s now just a bit easier for others to pick the carcass."


• 
  ECB: ECB President Lagarde said that French inflation was in a relatively good position relative to other areas in Europe; Lagarde is seeing some signs of stabilisation in supply chains, and added that it would be favourable to see an increase in wages. Elsewhere, ECB's de Cos said that no interest rises by the central bank were expected this year.


• 
  NORGES BANK: Norway's central bank left its policy rate unchanged at 0.50%, though said that it will most likely be raised in March. Underlying inflation has risen more than it expected and is now close to its inflation target. Policymakers were also concerned with the risk of a potential rise in domestic price and wage inflation due to capacity constraints and persistent global price pressures. Overall, the announcement was as expected, and we now look to incoming inflation readings to determine if an upward revision to the rate path may be justified at the March gathering where it continues to flag the next hike.

ECONOMIC DATA:

• 
  CHINA: China Q4 Beige Book noted that if China maintains zero COVID policy, services could face extreme pressure on both the supply and demand side with businesses shut and customers confined at home even due to just a single case in their area.


• 
  GERMANY PPI: German producer prices rose +5.0% M/M in December (exp. +0.8%, prev. +0.8%), with the annual measure rising to +24.2% Y/Y (exp. +19.4%, prev. +19.2%).


• 
  JAPAN TRADE: Trade Balance JPY -582.4bln in December (exp. -784.1bln, prev. -955.6bln); imports +41.1% Y/Y (exp. +42.8%, prev. +43.8%), exports +17.5% Y/Y (exp. +16.0%, prev. +20.5%).


• 
  AUSTRALIA JOBS: Australian Employment 64.8k in December (exp. 43.3k, prev. 366.1k), unemployment rate fell to 4.2% (exp. 4.5%, prev. 4.6%).

EQUITY NEWS:

FINANCIALS:

• 
  Crypto.com has not received any contact from regulators following a cybersecurity breach earlier this week of about 400 customer accounts, CEO told a Bloomberg conference, but is prepared to share information on the hack if any relevant inquiries are forthcoming.


• 
  SEC Chair Gensler said the agency was planning to consider additional rules on SPACs as they are costly for retail investors.


• 
  Discover Financial Services (DFS) Q4 2021 (USD): EPS 3.64 (exp. 3.67), Revenue 2.94bln (exp. 3.00bln). Loans rose 4.6% Q/Q to 93.7bln (exp. 93.09bln). Net charge-offs ratio 1.37% vs. 2.38% Y/Y (exp. 1.66%).


• 
  Carlyle Group (CG) is said to be constructing the largest-ever European buyout fund, and could aim to raise around EUR 7.5bln, according to sources.


• 
  UniCredit (UNCRY) is reportedly nearing the sale of its German real estate investment arm Wealthcap, according to sources; could fetch EUR 150mln.

TECH:

• 
  Alphabet's Google (GOOG) establishes a blockchain group under a newly appointed executive. Separately, Google is launching a limited beta of its app to bring Android games to Microsoft (MSFT) Windows PCs, The Verge reported. Google Play Games will be available in beta in Hong Kong, South Korea, and Taiwan today, allowing Windows PC owners to play popular Android games.


• 
  China’s Tencent (700 HK) and TikTok are to be added to the US tech platform antitrust bill, Politico reported citing sources.


• 
  ASML (ASML) Berlin factory said to resume production in H1 2022, according to reports.

COMMUNICATIONS:

• 
  Apollo Global Management (APO) and Standard General and are closing in on a USD 9bln deal for television station owner Tegna, NY Post reported, after the buyers and Tegna cleared a major stumbling block over the potential break-up fee if the deal did not clear regulatory approval.


• French appeals court has ordered Twitter (TWTR) to release information on how it tackles online hate speech, according to Reuters sources.

INDUSTRIALS:

• 
  United Airlines Holdings Inc (UAL) Q4 2021 (USD): EPS -1.60 (exp. -2.08), Revenue 8.20bln (exp. 7.99bln); delaying capacity increases due to Omicron. Exec said that Omicron was impacting near-term demand, but is optimistic about the spring, summer and beyond. Pratt & Whitney 777s to be brought back to service this quarter. Q4 capacity -23% vs Q4 2019, Q4 TRASM -3% vs Q4 2019, Q4 CASM-ex +13% vs Q4 2019. Sees Q1 capacity lower by 16-18% vs Q1 2019 levels; sees Q1 revenue down 20-25% vs Q1 2019 levels; sees Q1 CASM-ex higher by 14-15% vs Q1 2019. Sees FY22 capacity down vs 2019 levels, but CASM-ex higher, and sees FY22 adjusted capex around USD 4.2bln.


• 
  American Airlines (AAL) said it has seen some minor operational impact after new 5G service and some additional impact to its regional fleets, Reuters reported; expects FAA to issue updated operating requirements for Airbus (EADSY) and regional fleets soon that will allow the airline to operate as normal at most airports.


• 
  Alstom (ALSMY) Q3 sales EUR 3.92bln (prev. EUR 3.71bln Y/Y). Q3 orders EUR 4.58bln (prev. EUR 4.37bln). Confirms FY objectives.


• 
  Vinci (VCISY) has been awarded a contract for the Takitimu North Link road in south-east Auckland in New Zealand worth NZD 655mln.


• Israel signed a USD 3.4bln submarine deal with Thyssenkrupp (TKAMY).

MATERIALS:

• 
  Alcoa (AA) Q4 21 (USD): Adj. EPS 2.50 (exp. 1.86), Revenue 3.34bln (exp. 3.36bln). Aluminium production increased 2% Q/Q, total third-party shipments -5% Q/Q due to strike action at the San Ciprian smelter.


• 
  BHP (BHP) reported that one-off corporate restructure unification costs were now expected to be between EUR 350-450mln; dividend policy to remain the same after proposed unification.

ENERGY:

• 
  US API private energy inventory data reportedly showed Crude stocks +1.4mln in the week (exp. -0.9mln), Cushing -1.5mln, Gasoline +3.5mln (exp. +2.6mln), Distillate -1.2mln (exp. -0.9mln).


• 
  Chesapeake Energy (CHK) is in advanced talks to acquire Chief Oil & Gas for around USD 2.4bln, according to sources.


• 
  Kinder Morgan (KMI) Q4 '21 (USD): EPS 0.48 (exp. 0.47), Revenue 4.43bln (exp. 3.56bln).


• 
  Phillips 66 (PSX) and Novonix (NVNXF) signed a technology development agreement to advance the production and commercialisation of next-generation anode materials for lithium-ion batteries.


• 
  MidAmerican Energy, a subsidiary of Warren Buffett’s Berkshire Hathaway Energy, announced plans for a USD 3.9bln renewable energy project in Iowa, including wind and solar generation, and the exploration of new technologies to advance the company’s transition to net-zero greenhouse gas emissions.


• 
  Repsol (REPYY) reported an oil spill in Peru caused by the Tonga volcanic eruption.


• 
  Telenor (TELNY) partners with Amazon's (AMZN) AWS to accelerate modernisation of telecommunication.


• CONSUMER CYCLICALS:


• 
  Entain (GMVHY) noted robust performance in Q4, with Net Gaming Revenue +4% Y/Y. Online growth continues to be actives-driven, with actives +25% Y/Y. Raises FY21 EBITDA forecast to GBP 875-885mln.


• 
  Deliveroo (ROO) Q4 Gross Transaction Value (GTV) growth +36% Y/Y (vs +58% Y/Y in Q3); FY GTV +70% Y/Y, the top-end of previously guided 60-70% growth range. Maintains its prior guidance.

CONSUMER STAPLES:

• 
  PepsiCo (PEP) and Beyond Meat (BYND) are planning a vegan jerky snack as the first product in their JV, Bloomberg said.


• 
  AB Foods (ASBFY) trading update for the 16-weeks to January 8th (GBP): group revenue 5.57bln (prev. 4.8bln); grocery 1.2bln (prev. 1.2bln), total food 2.9bln (prev. 2.7bln), retail 2.67bln (prev. 2.0bln). Primark sales -5% vs pre-COVID levels, LFL sales -11%; expects Primark sales ahead to be significantly better Y/Y. Says its US business was the standout performer, with LFL sales +4%. Outlook remains unchanged.

HEALTH CARE:

• 
  Pfizer (PFE) was awarded a USD 2.05bln modification to a contract for an additional 300mln doses of COVID-19 vaccine for international donation to low and low-middle income countries.


• Almost 30 manufacturers agreed to produce Merck's (MRK) COVID pill Molnupiravir.


• 
  Unilever (UL) said it will not increase its offer for GlaxoSmithKline (GSK) consumer unit above GBP 50bln, with the company adding that data shared by GSK suggests that the ‘fundamental value’ of business is no higher than that offer.

20 Jan 2022 - 09:36- EquitiesGeopolitical- Source: Newsquawk